On January 1, Palisades, Inc., acquired 100 percent of Sherwood Companys common stock for a fair value of $120,340,000 in cash and stock. The carrying amounts of Sherwoods assets and liabilities equaled their fair values except for its equipment, which was undervalued by $534,000 and had a 10-year remaining life.

Palisades specializes in media distribution and viewed its acquisition of Sherwood as a strategic move into content ownership and creation. Palisades expected both cost and revenue synergies from controlling Sherwoods artistic content (a large library of classic movies) and its sports programming specialty video operation. Accordingly, Palisades allocated all of Sherwoods assets and liabilities (including all $49,745,000 of goodwill recognized in the acquisition) to a newly formed operating segment appropriately designated as a reporting unit.

However, Sherwoods assets have taken longer than anticipated to produce the expected synergies with Palisadess operations. Accordingly, Palisades reviewed events and circumstances and concluded that Sherwoods fair value was likely less than its carrying amount. At year-end, Palisades assessed the Sherwood reporting units fair value to $110,340,000.

At December 31, Palisades and Sherwood submitted the following balances for consolidation. There were no intra-entity payables on that date. Also, Palisades had not yet recorded any goodwill impairment.

	Palisades, Inc.			Sherwood Co.
Revenues	$	(18,570,000	)	$	(12,340,000	)
Operating expenses		10,350,000			12,140,000
Equity in Sherwood's earnings		(146,600	)
Dividends declared		385,000			114,000
Retained earnings, 1/1		(52,510,000	)		(2,391,000	)
Cash		396,000			126,000
Receivables (net)		244,000			914,000
Investment in Sherwood		120,372,600
Broadcast licenses		435,000			14,048,000
Movie library		450,000			45,340,000
Equipment (net)		131,170,000			17,670,000
Current liabilities		(202,000	)		(735,000	)
Long-term debt		(22,000,000	)		(7,420,000	)
Common stock		(170,170,000	)		(67,670,000	)

1. At what amount should Palisades record an impairment loss for its Sherwood reporting unit for the year?

2. What is consolidated net income for the year?

3. What is the December 31 consolidated balance for goodwill?

4. Prepare a consolidated worksheet for Palisades and Sherwood (Palisadess trial balance should first be adjusted for any appropriate impairment loss).

c. At what amount should Palisades record an impairment loss for its Sherwood reporting unit for the year? d. What is consolidated net income for the year? (Negative amounts should be entered with a minus sign.) e. What is the December 31 consolidated balance for goodwill? C. d. Impairment loss Consolidated net income (loss) Consolidated goodwill e. PALISADES AND SHERWOOD Consolidated Worksheet December 31 Consolidated Entries Accounts Palisades, Inc. Sherwood Co. Debit Credit Consolidated Totals Revenues $ (18,570,000) 10,350,000 (12,340,000) 12,140,000 $ (30,910,000) 22,543,400 53,400 Expenses Equity in Sherwood earnings Impairment loss (146,600) 146,600 9,348,000 X 981,400 $ 9,348,000 X 781,400 Net income/loss $ (200,000) $ Retained earnings 1/1 2,391,000 Dividends declared 114,000 $ (52,510,000) 385,000 981,400 $ (51,143,600) X $ (2,391,000) 114,000 (200,000) 2,477,000 $ (52,510,000) 385,000 981,400 X $ (51,143,600) X Net income/loss Retained earnings 12/31 Cash $ 396,000 126,000 $ 522,000 1,158,000 914,000 Receivables (net) Investment in Sherwood 244,000 120,372,600 X 435,000 114,000 120,486,600 Broadcast licenses 14,048,000 14,483,000 Movie library Equipment (net) 450,000 131,170,000 45,340,000 17,670,000 45,790,000 149,320,600 53,400 534,000 40,397,000 X Goodwill 0 0 Total assets $ 253,067,600 X $ 78,098,000 $ 251,670,600 X Current liabilities $ Long-term debt (202,000) (22,000,000) (170,170,000) (51,143,600) (735,000) (7,420,000) (67,670,000) (2,477,000) $ (937,000) (29,420,000) (170,170,000) (51,143,600) Common stock 67,670,000 Retained earnings 12/31 Total liabilities and equity $ (243,515,600) $ (78,302,000) $ 111,306,000 120,654,000 c. At what amount should Palisades record an impairment loss for its Sherwood reporting unit for the year? d. What is consolidated net income for the year? (Negative amounts should be entered with a minus sign.) e. What is the December 31 consolidated balance for goodwill? C. d. Impairment loss Consolidated net income (loss) Consolidated goodwill e. PALISADES AND SHERWOOD Consolidated Worksheet December 31 Consolidated Entries Accounts Palisades, Inc. Sherwood Co. Debit Credit Consolidated Totals Revenues $ (18,570,000) 10,350,000 (12,340,000) 12,140,000 $ (30,910,000) 22,543,400 53,400 Expenses Equity in Sherwood earnings Impairment loss (146,600) 146,600 9,348,000 X 981,400 $ 9,348,000 X 781,400 Net income/loss $ (200,000) $ Retained earnings 1/1 2,391,000 Dividends declared 114,000 $ (52,510,000) 385,000 981,400 $ (51,143,600) X $ (2,391,000) 114,000 (200,000) 2,477,000 $ (52,510,000) 385,000 981,400 X $ (51,143,600) X Net income/loss Retained earnings 12/31 Cash $ 396,000 126,000 $ 522,000 1,158,000 914,000 Receivables (net) Investment in Sherwood 244,000 120,372,600 X 435,000 114,000 120,486,600 Broadcast licenses 14,048,000 14,483,000 Movie library Equipment (net) 450,000 131,170,000 45,340,000 17,670,000 45,790,000 149,320,600 53,400 534,000 40,397,000 X Goodwill 0 0 Total assets $ 253,067,600 X $ 78,098,000 $ 251,670,600 X Current liabilities $ Long-term debt (202,000) (22,000,000) (170,170,000) (51,143,600) (735,000) (7,420,000) (67,670,000) (2,477,000) $ (937,000) (29,420,000) (170,170,000) (51,143,600) Common stock 67,670,000 Retained earnings 12/31 Total liabilities and equity $ (243,515,600) $ (78,302,000) $ 111,306,000 120,654,000